“It is always a surprise to Chief Financial Officers (CFOs) and the pension community how correlated the pension fund of a company is with its overall business performance,” says Paul Zemsky, Chief Investment Officer, Multi-Asset Strategies at ING Investment Management. This is why it is critical that CFOs understand the relationship between the pension fund assets and liabilities.

Paul Zemsky: CFOs are overlooking the amount of risk being taken between assets and liabilities. Not all CFOs have realized the impact that pension fund risks can have on their company’s overall success.

Liabilities are very sensitive to interest rates. When rates go down, liabilities go up; in fact, the liability can move as much as 20 per cent for every one per cent change in the 30-year Treasury rate. Assets, however, are generally much less sensitive to interest rate fluctuations. Since liabilities change much more quickly than assets, there is a risk of a fund becoming underfunded, resulting in additional expense to the company to close a gap that may be relatively large compared to the other operational needs of the business.

This rolls up into the finance office, which then has to come up with cash flows to support the fund’s legal obligations. In our view, CFOs are not paying enough attention to this risk and could face very unpleasant surprises.

What risk management strategies should CFOs look into?

Paul Zemsky: In pension risk management, assets need to be reconfigured to be more sensitive to interest rates and to follow the changes in the value of the liability more closely, so that the differences between the assets and liability are more stable. This would reduce the risk of having to come up with significant money for the pension fund in any one year.

Money managers have developed liability-driven investing programs for companies to deal with this. However, the industry is surprised that very few have adopted these types of policies. When the third quarter results come out, we should see many more pension funds having become seriously underfunded over the summer as falling interest rates resulted in liabilities growing more than the assets.

From your perspective, what is the CFO’s role in today’s highly competitive business landscape?

Paul Zemsky: CFOs need to be on top of pension risks. The fund is a corporate asset, and the CFO has to minimize the cost of funding it.

CFOs do not need to be investment experts, but they do need to be armed with the information to know what key questions to ask. They must know the surplus volatility, the probability or range of funding status, and the odds of a contribution surprise.

It is always a surprise to CFOs and the pension community how correlated the pension fund of a company is with its overall business performance. When interest rates and stock markets fall and the company faces a very underfunded pension fund, it is usually when the economy is soft and the overall business environment is poor. That is a double whammy for the business.

How can the CFO make sure there is enough revenue for the pension fund?

Paul Zemsky: We would argue that it is more important to make sure that assets keep up with liabilities. This was one mistake that was made in the past. Assets can grow ten per cent in one year and people may think that is a great return. In the meantime, liabilities could have expanded 20 per cent, leaving the plan worse off than the year before.

The first thing the CFO should do is understand the relationship between assets and liabilities, how that can move in different market environments and what the risks are in extreme cases. Once they are comfortable with the risks, they can then come up with an asset allocation policy that can grow assets faster than liabilities.

This unique forum will take place at the Red Rock Casino, Resort & Spa, Las Vegas, Nevada, November 10-12, 2011. Offering much more than any conference, exhibition or trade show, this exclusive meeting will bring together esteemed industry thought leaders and solution providers to a highly focused and interactive networking event. The Summit includes presentations on how innovation can transform finance organizations, the CFOs role in growth and international expansion and the 2012 financial landscape.

Please note that the summit is a closed business event and the number of participants strictly limited.

About ING Investment Management

ING Investment Management U.S. (ING IM U.S.) is a leading active asset management firm. As of June 30, 2011, ING IM U.S. manages approximately $162 billion for both affiliated and external institutions as well as individual investors. ING IM U.S. has the experience and resources to invest responsibly across asset classes, geographies and investment styles. Through our global asset management network, we provide clients with access to domestic, regional and global investment solutions.

marcus evans Summits are high level business forums for the world’s leading decision-makers to meet, learn and discuss strategies and solutions. Held at exclusive locations around the world, these events provide attendees with a unique opportunity to individually tailor their schedules of keynote presentations, think tanks, seminars and one-on-one business meetings. For more information, please visit www.marcusevans.com

All rights reserved. The above content may be republished or reproduced – kindly inform us by sending an email to press@marcusevanscy.com

Daniel M. Berman, a speaker at the marcus evans Tax Officers Summit XII 2011, on the corporate and international tax reforms that lie ahead.

Interview with: Daniel M. Berman, Professor of the Practice of Tax Law and Director, Graduate Tax Program, Boston University School of Law

FOR IMMEDIATE RELEASE

“The current US tax system cannot continue the way it is,” says Daniel M. Berman, Professor of the Practice of Tax Law and Director, Graduate Tax Program, Boston University School of Law. The performance of the economy and the budget deficit are such that significant tax reforms are highly likely, Berman adds.

What changes to the US taxation system do you anticipate in the next few years?

Daniel M. Berman: The US budget deficit is so great, that it is highly likely that there will be major tax reform. The current system can no longer continue the way it is. I expect corporate and international taxes to change, including the international aspects of US corporate taxation.

This will be a major effort in Washington, and the participation of American businesses will be important. Tax Officers need to stay informed and participate in the process, through professional and trade associations and perhaps a Washington office of their own company. There are many opportunities to get involved in the process and help design a new system.

Would corporate taxes increase?

Daniel M. Berman: Not necessarily. The basic idea is to make the tax system more suitable for the economy. If it becomes more efficient, more net revenue can be collected and more business activity generated without raising tax rates.

No Tax Officer is happy with the current system. It has a lot of in-built structural inefficiencies and compliance has become a major burden. The system needs to be streamlined.

How will international tax policies change?

Daniel M. Berman: The idea of changing from a worldwide to a territorial tax system has been developing a lot of interest for a while. At present, a US-based multinational corporation pays taxes in the US on its worldwide income as well as taxes in the other countries it operates in, with a credit here for taxes paid elsewhere. And income and taxes of a foreign subsidiary generally are deferred until the profits are brought home. Our system does not take international activities into account in a simple way.

Many companies have proposed that the US economy would be better off if we switched to a territorial system, only taxing income earned in the US, with income earned elsewhere neither taxed nor credited. This sounds simple but it puts pressure on identifying the boundaries for taxation.

It is not clear how simple a territorial system would be, but a lot of work is going into developing a system that could work successfully. However, the winners and losers in a territorial system would not be the same as in the current system, which of course has political consequences.

This unique forum will take place at Red Rock Casino, Resort & Spa, Las Vegas, Nevada, November 10-12, 2011. Offering much more than any conference, exhibition or trade show, this exclusive meeting will bring together esteemed industry thought leaders and solution providers to a highly focused and interactive networking event. The Summit includes presentations on coping with the evolving tax world, gaining insight into uncertain tax position statements and enabling tax reform that will work.

Please note that the summit is a closed business event and the number of participants strictly limited.

About marcus evans Summits

marcus evans Summits are high level business forums for the world’s leading decision-makers to meet, learn and discuss strategies and solutions. Held at exclusive locations around the world, these events provide attendees with a unique opportunity to individually tailor their schedules of keynote presentations, think tanks, seminars and one-on-one business meetings. For more information, please visit www.marcusevans.com

All rights reserved. The above content may be republished or reproduced – kindly inform us by sending an email to press@marcusevanscy.com